How to Tell When Your Country Is Managing Its Riches Well – Giugale

Say that your country is blessed with natural resources. Oil, gas, minerals — it has it all. New technologies are leading to even more discoveries. Your president is on television on an almost daily basis signing new exploration deals — likely with foreign companies — or happily announcing new finds. The future looks good. But deep down you worry that the bonanza could turn into a bust — maybe you live in Africa and have seen how windfalls have been wasted before. How do you know that’s not going to happen now?

Six signs of sound governmental management of natural resource wealth are outlined by Marcelo Giugale, the World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, in an article in The Huffington Post. These are summarised below:

Budgeting: projections for the industry and estimates of commodity prices that inform the governmental budget are calculated by a non-partisan independent body (politicians tend to be too optimistic).

Saving: some rent from the extractive industries is saved in a sovereign wealth fund for difficult times and future generations.

Reducing Public Debt: rents from exploiting natural resources pay government debt; this is equivalent to transferring commodity wealth to future generations. A worrying sign is if a country is quickly depleting resources while increasing borrowing.

Public Investment: a team of professionals need to be responsible for evaluating public investment projects. The best projects focus on the results (maximising the outcome of an investment) and are based on best practices (achievements of money spent in the past).

Auditing: at the end of the financial year, accounts are audited on time and published to ensure the approved budget was actually respected.